Question

In the short-run, what is the difference between variable costs and fixed costs? Why are fixed costs call sunk? Why would your economics professor never ask you the question, "What is the difference between variable costs and fixed costs in the long-run?"

Answer 1

In Short-Run Fixed Costs does not change irrespective of the level of output. However in Short run Variable Cost per unit changes with the level of output
Hence in Short any change in level of output shall change the Total variable cost but will not change the Fixed Costs
In the long-run, there is no such concept of variable or Fixed costs as in the long run all components of Total Costs shall change, So asking the difference
between Variable cost and Fixed cost make no real sense.
Sunk Costs are those costs which once spent can never be recoevered.For this reason these costs are never considered for decision making in the business.
One of the example is Resesrach costs incurred in developing a new product
So Fixed costs are known as Sunk as once incurred can't be recovered.
So in nature All Sunk Costs are Fixed Costs but all Fixed Costs are not Sunk Costs